Senate Economics Legislation Committee, , 1:55:07 to 2:09:14
Debate over the net impact of government spending decisions on inflation and the distinction between policy choices and estimates variations.
Topics: Government spending, Efficiency dividend
Speakers: Hon Katy Gallagher, Jenny Wilkinson, Hon Jane Hume, Senator Lisa Darmanin, Unknown Speaker
I'm rotating to Senator Hume. Thank you, Chair. I want to take you back to something that you said a little bit earlier. I was asking questions about the connection between government decisions, government spending, and pressure on inflation. You said I'm just I'm quoting you back here, your yourself back to you here. You said we have to make assessments about what the net impact of government decisions are on both public and private demand. You then said they have to make decisions about what spending and taxation decisions they are going to make in order to set fiscal policy. And then you said, and what I'm saying is that when I think about the 25-26 budget and the 25-26 Maefo and the 26-27 budget, in all of those cases, the net impact of fiscal policy on the macro economy in 25-26, 26-27 has been reduced. So I I'm looking at page 94 of BP 1 here, and I want to understand. Did an additional $5.3 billion in net decisions in 25-26 put downward pressure on inflation? Because that was your testimony before.
No, Senator. That's that's that's that was not my testimony. I was not, and as I said in my test to me, and I and I've I am absolutely not trying to be misleading here. Um the the net impact of the budget, which I think about as being the net impact of government on macroeconomic outcomes, um, is best represented by the uh the change in the underlying cash balance. Um that that's a that's a I think it's the most useful summary measure. It's not the only summary measure, but it's a most useful summary measure. And the point that I was making was that when you look at the net impact of the budget and you look at the the um the change in the underlying cash balance over a series of budgets and my EFOs, they have consistently in this year and in last year, reduced the the deficit has been lower. So that's the point that I was making. Um I was I was looking, I I was trying to sort of say the net impact of, and you're right, is the net impact of decisions and estimates variations, but those two things together, though you have to think about those things together when you're thinking about the impact of the budget on the economy. Like it it is those two, those things together which are the sort of the best estimate of what the impact of the budget or fiscal policy on the economy is. That's the point that I was making, and I apologise if I was uh not sharp enough with my language. I didn't intend to be. What I'm trying to do is is be as clear as possible about what the impact of fiscal policy on the economy is, and and I think the best summary measure is that measure of of how the underlying cash balance uh has changed between budget updates because that reflects, if you like, the all of the decisions that have been front in front of government, including dealing with estimates variations. I mean, that's part of what government has to do. They see what's changing and they have to make decisions, and the net of those things together is the best estimate of what uh the fiscal impact on the macro economy is. That's all I was trying to say.
Okay, so the decisions is the part that the government can control. Variations will be variations. Government can respond to variations, certainly, but it's decisions that government make that is the determinant of fiscal policy.
But the impact of fiscal policy on the macroeconomy is the combined impact of decisions and estimates variations. Those things together you have to think about when you're trying to work out what the impact, what the fiscal impact on the macro economy is.
Let me look at it a different way then. Are the decisions that government is making, and let's be honest, the decisions that government is making according to the budget papers are to spend more. Are the decisions that government is making to spend more having an inflationary impact? Is that expansionary fiscal policy, the decisions that government is making to spend more? Is that expansionary and is it having an expansionary fiscal policy having an impact on inflation?
Well, Senator Hume.
I'm sorry, sorry.
Yeah, oh well, I was going to say, if if you use that um. Yeah, you've got to look at uh other decisions we make about spending, but we take decisions about savings as well. Um, and that has that has an overall impact, and that's why the UCB impact, as the Secretary is saying, is the best measure of the essentially the practical effect of all of those decisions on the economy. If we look at the year that you've talked about, I think can you use the five billion dollar figure in that three billion of that was fuel cost relief. So, yes, we've we we took a decision. Uh we've taken in the budget hundreds, if not thousands of decisions. I mean, that's how the budget's put together. But we did take a decision, I think which you supported in order to provide some temporary relief from the uptick in fuel that that people were experiencing at that time.
You recall, Minister, that the coalition in opposition wanted you to offset that spending. Well, we called for you to offset that spending, and you didn't, and that was a decision. That's a choice.
Well, I mean, we have a range of other decisions that feed in there. I mean, yes, I think from memory, um you had um you know, similar to some of the announcements you've made in the last few days about ending the batteries program and ending EV. So, you know, let's not pretend that uh there isn't um some of the politics at play in that. We we have savings built into the budget, including ones that you are opposing in order to offset spending. Uh so we think about spending and the investments we have to make. Uh often investments that people are calling for us to do more on. Um, and then we also take decisions about savings and offsetting that spending.
So the government has spent 120 billion dollars more than it has saved. That's a decision of government. That's over its entire time in office. Savings in the budget in order to offset spending, is what you said. Is that right?
I mean, I don't know. Let me be very clear.
What is the difference between a saving and a reprioritisation? Can you explain that to me, Secretary?
Well, I can.
Um but I asked the Secretary.
Well, I can uh a reprioritization is where uh and I can give you an example where a minister uh comes and essentially says we have this um uh you know in our budget, this amount of money. Uh we we don't need it for that anymore, but we do need it to meet this pressing pressure. It might not happen within the same department, more often or not it does, um, but it's a way of reallocating resources without um providing additional resources because without reprioritising the spending pressures or the requests for spending would be even greater than they are now.
All right, I need to understand this. Secretary, you said earlier that I think the point that you make, which is that we can control only what we can control is the right way of thinking about this. Policy decisions, not parameter variations, policy decisions are what a government can control. Since coming to office, has this government spent more than it has saved? Has it chosen to do that?
So again, Senator, I I when I look at budgets that governments bring down, they represent the things that governments have control over. Governments get to choose to bring down budgets and uh and um and and that's as I say that that is the that is I mean I I feel like I've I I've made this point, but that is that that the net impact of all of these is the best impact, sorry, is the best estimate of uh how fiscal policy affects um uh the economy. So um obviously within the budget papers, um the reconciliation table uh illustrates the difference between um decisions and estimates variations, um, and that provides transparency about um the different components that go into leading to outcomes, which in net terms are the outcomes that are published in the budget. And um and and those are um that it's all of that is what government has uh within its gift to respond to.
Okay. I'm just gonna ask the same question again because I'm sorry, but Senator McKim went 15. The number that I have is 120 billion dollars of more spending than saving. Has this government over its time in office spent more than it has saved?
Well, Senator Hume. Um I don't know the figure that you are using there. We have taken uh spending decisions, much of which you have endorsed when I think about the big spending investments, probably outside of the wages pol uh investment that we've done, but when you look at um the extra investment to hospitals, the Medicare bulk billing, the urgent care clinics, the extra investments in age care, I think all of those they are the big decisions. Defence, you want to spend more than than we have allocated at the moment. No, well you've asked about spending, and I'm telling you where we have made where we have made additional uh decisions about additional spending. The point I am making is that I don't recall you objecting to the big areas where we have made investments. In fact, I seem to remember in the election campaign you endorsing it. Um those big areas, health, aged care, uh wages for women. I understand by all means, Minister.
I understand you want to all the things that you have. We have invested heavily what I want to understand is a question from the Secretary, it's the third time I have asked it. And last year, and that's a very important thing.
I'm not sure. I'm not sure whatever number.
But do the budget papers show that this government has spent more than it has saved? It's a really simple question.
Let's just um go to Ms. Wilkinson and then I'm gonna go to the book.
I think I I am allowed to answer questions here, and I hadn't finished on the spending that we have um done because I have my time.
Well, the Secretary giving me a list.
I have to have enough that can answer that. I have sat here since nine o'clock with your due respect, Senator Hume. Let's just it's not unusual for a minister. You're here and it's not for the Secretary. It's not for the Secretary to defend decisions that we have made. You're not defending about spending.
I'm just gonna go to the end of the day.
So that is why I have intervened. Okay, in terms of whether there is further information we can provide you that um you know it's here. Over uh the budget and budget updates that we made, we will provide that to you, Senator Hume. But I am merely pointing out that yes, we have taken decisions around uh spending, and we've made those decisions for good reasons, including on wages uh for uh women across the economy. When I think of the biggest decision we have taken, it is probably that.
Let's have one person talk at a time. Thank you, Minister. Ms. Wilkinson, would you like to add anything before I rotate the call?
So I don't I don't have an answer to the question that Senator Hume has. I don't have a I don't have a cumulative estimate of I I don't know what so I I have but I have the budget papers, you have the budget papers in front of you. I I have the reconciliation table. So you so I don't I mean that that is that that um is a summary for this budget of decisions that have been taken.
I thought you were talking about a overaccumulation of budget.
I don't have that information over.
Can fiscal group do it? When we get to fiscal so it so what is can they answer this question about whether more has been spent than saved over the life of this government? I think I'm just giving fiscal a little heads up here.
When fiscal come on, see how we can assist Senator Hume.
Thank you. Thank you for the heads up, Senator Roberts. And I would just note we have a hard stop at 11am, so um you've got seven minutes.